European Commissioner responsible for Employment, Social Affairs and Inclusion

Joint European Report confirms growing divergence

Press conference / Brussels

13 November 2013

The draft Joint Employment Report, that the Commission has just approved together with the Annual Growth Survey, gives a specific assessment of employment and social trends in Europe and of recent policy developments.

The Commission's assessment is that the employment and social situation continues to worsen, with more than 26.8 million jobseekers unable to find a job, household incomes falling in many countries and inequalities rising.

This social crisis represents a drag on growth in the short term by weakening demand. But it also threatens to undermine our long-term competitiveness as people lose their skills and many young people struggle to get a foothold in the labour market.

We can also observe a growing divergence between Member States' employment and social situations, particularly in the euro zone. This divergence is highlighted in the new scoreboard of key employment and social indicators which we proposed in the recent communication on the social dimension of the EMU and which we are presenting in this year's AGS package for the first time.

The five key indicators are: unemployment; youth unemployment and the numbers of young people not in education, employment or training (so-called NEETs); household disposable income; the percentage of the working age population at-risk-of-poverty and income inequalities.

The scoreboard is a tool through which we aim to better identify major employment and social problems that need to be tackled in the common interest of the EU, and particularly to ensure the proper functioning of the Economic and Monetary Union.

Just as we are paying attention to macroeconomic imbalances in the EMU, we need to pursue convergence of socio-economic fundamentals such as unemployment or inequalities, and we need to ensure, through the European Semester, that timely and effective policy action is taken to tackle key employment and social problems.

The draft Joint Employment Report, including the new scoreboard, will be discussed and adopted by the Council of Ministers and will be further used by the Commission during the European Semester.

Let me briefly take you through the main findings of the draft Joint Employment Report:

Since 2008, there is a persistent and growing divergence in the EU between South and North, or between 'central' and 'peripheral' countries.

This divergence is clearly visible in the rates of unemployment, youth unemployment and young NEETs.

As for household incomes, they kept increasing in the North and central euro area countries, but declined by about 10% cumulatively in the peripheral countries from 2010 till 2012, affected among other things, by wage moderation, reduced social protection expenditure and higher taxes.

Poverty rates have also grown in the 'periphery', an increase that came on top of already high levels, while remaining steady in the 'core' countries.

The report shows that the working age population has been most affected, due to unemployment or in-work poverty, and that the risk of poverty has also risen for children, as the situation of their parents has got worse.

Income inequality is also increasing across and within Member States, in particular in the Southern and peripheral countries, in other words those that have suffered the largest increases in unemployment.

In many countries, the crisis has also intensified the existing wage polarisation and labour market segmentation. At the same time, tax and benefit systems have become less redistributive, which has also contributed to rising inequalities.

These findings should be taken into account by all Member States, since their negative consequences can affect the EU as a whole. Indeed, spill-over effects can affect even more resilient Member States due to the decrease in aggregate demand, the loss of confidence and contagion via the financial markets.

Therefore, it is in the interest of all Member States to make sure that employment and social challenges are addressed on time and in an effective way. Sometimes an effective response also requires solidarity between Member States. The action which the EU is taking through the Youth Guarantee is one example of such a concerted response.

The draft Joint Employment Report also gives an overview of the main employment and social reforms set out by Member States during last year and of the implementation of Country Specific Recommendations in the field of employment and social policies.

However, the extent of progress with these reforms varies across policy areas and between Member States and further efforts are needed.

Let me give just one example, namely the tax wedge on low-paid labour.

Since early stages of the crisis, it has been widely accepted that to maintain employment and promote new job creation, it is important to lower income taxes and social security contributions on low-paid labour, in order to make hiring easier and to strengthen the demand for goods and services among lower-income households.

Yet the figures in the Joint Employment Report show that in most countries, the tax wedge on people earning two-thirds of the average salary has actually risen, and there are only a few cases where any notable reductions were undertaken.

The recovery we are seeing is still very fragile. The EU economy is still far from creating enough job opportunities, and millions of people who want to work simply do not get the chance. So it is crucial that governments step up their employment policies to support a job-rich recovery.

More specifically, Member States need to further improve the resilience of their labour markets to economic changes, notably by improving their public employment services and stepping up investment in human capital.

Member States should implement the Youth Guarantee which is a key structural reform for improving school to work transitions and fighting youth unemployment. Cooperation between employment services, schools and companies must be upgraded to ensure that young people receive appropriate advice on job, education and training opportunities most relevant to their own situation.

Secondly, Member States should maximise job creation in fast growing sectors such as the health sector information, information and communications technologies and the greening of the economy. Member States must ensure people have the skills necessary to work in these growth sectors.

Finally, as the risk of poverty, social exclusion and inequalities have grown significantly in a number of Member States, they need to improve the performance of social protection systems and target social investment to reduce inequalities and poverty over time.